Do you want to avoid going into debt shopping for Christmas gifts? Consider choosing layaway, a budget-conscious way to pay for things that started in the Great Depression.
Sears is bringing back its layaway program two decades after it was scrapped. Sears Holdings, owner of Kmart stores, has seen a strong response to the pay-as-you-go plan at its Kmart locations.
Several stores with whom I have spoken have reportedly doubled holding capacity for layaway items. Here is how it works.
Layaway: If you pay $1,000 for a bunch of Christmas gifts on layaway, you will have to put 25 percent down. You can make weekly payments and pay the balance when you pick up the merchandise for Christmas. Some stores require a $5 service charge. Total bill $1,005.
Credit card: If you buy $1,000 worth of items on your credit card and wait six months before paying it off, your total bill will be $1,100 at 20 percent interest rate. If you wait a year to pay off the credit card, and you are late with your payments, you may pay a total of $300 in interest, fees and late penalties. Now your $1,000 purchase costs you $1,300,
Christmas is only five weeks away. Every store policy is different, but essentially they require a down payment upon layaway and the balance due when you pick it up.
Say you want to buy a new washing machine before Christmas that costs $600, but you only have $150 to spend this week. You pick out the washer you want, put down a $150 deposit, and the store sets it aside for you. Then, you send regular payments each week or month until you have paid for the washer and you go pick it up.
.
Consumers in the 1930s, 1940s and 1950s would purchase items using layaway. However, when credit became more accessible, consumers would borrow the money instead of using layaway. Several stores quit the program.
Wal-Mart Stores got rid of its layaway program in 2006. Sam Walton added layaway in 1962 when he founded the company.
For the holidays or any large purchase, layaway is back. I hope you will consider using it.
Saturday, November 22, 2008
Friday, November 7, 2008
Credit Card Debt Forgiveness
I warn people about the pitfalls of using credit cards. We all know people who are drowning in credit card debt. Debt, which they will never be able to pay.
Now I am surprised to learn that to head off surging credit card defaults, banks and consumer groups are lobbying regulators to make it easier to forgive a portion of struggling consumers' credit card debt.
The proposal — and the unusual partnership by two groups typically at odds with each other — underscores the severity of the economic downturn, and the fear that credit cards could provide the next shock to the financial system.
USA Today reports that in 2008, delinquent credit card accounts hit a six-year high of 4.9%. Meanwhile, charge-offs — when banks give up on collecting debt — have been rising for about two years, hitting 5.47% in the second quarter, the latest data available, according to the Federal Reserve. Credit card and mortgage losses have dragged down banks' earnings.
Banks are proposing that they forgive up to 40% of the credit card debt owed by the most financially stressed consumers, who are close to bankruptcy. These consumers would then get five years to pay off their remaining card debt, interest-free. Banks would pilot this program with 50,000 consumers, in hopes of expanding it to tens of thousands of others.
When you consider those on Wall Street, many people are getting a helping hand to overcome the debt they have created. Will they learn from this? We all need to learn to avoid the debt and the plastic cards in the first place.
Although I understand why banks want to forgive some of the debt, I think it is wrong. This one of the primary problems in our society. Nobody takes responsibility for their actions. If you sign, you are responsible to pay the debt. Congress provides a poor example for the rest of us. When we all learn to be more responsible with the money we have and stop the unnecessary spending, our nation, with or without a new president, will get back on the right track.
Now I am surprised to learn that to head off surging credit card defaults, banks and consumer groups are lobbying regulators to make it easier to forgive a portion of struggling consumers' credit card debt.
The proposal — and the unusual partnership by two groups typically at odds with each other — underscores the severity of the economic downturn, and the fear that credit cards could provide the next shock to the financial system.
USA Today reports that in 2008, delinquent credit card accounts hit a six-year high of 4.9%. Meanwhile, charge-offs — when banks give up on collecting debt — have been rising for about two years, hitting 5.47% in the second quarter, the latest data available, according to the Federal Reserve. Credit card and mortgage losses have dragged down banks' earnings.
Banks are proposing that they forgive up to 40% of the credit card debt owed by the most financially stressed consumers, who are close to bankruptcy. These consumers would then get five years to pay off their remaining card debt, interest-free. Banks would pilot this program with 50,000 consumers, in hopes of expanding it to tens of thousands of others.
When you consider those on Wall Street, many people are getting a helping hand to overcome the debt they have created. Will they learn from this? We all need to learn to avoid the debt and the plastic cards in the first place.
Although I understand why banks want to forgive some of the debt, I think it is wrong. This one of the primary problems in our society. Nobody takes responsibility for their actions. If you sign, you are responsible to pay the debt. Congress provides a poor example for the rest of us. When we all learn to be more responsible with the money we have and stop the unnecessary spending, our nation, with or without a new president, will get back on the right track.
Wednesday, November 5, 2008
Credit Cards, the next economic crisis
Last week, the US Federal Reserve cut interest rates by half a percentage point to 1 per cent. That does not mean rate of interest will be reduced on your credit card. In fact the rate of interest you pay on your credit card is not expected to go down any time soon, if ever. The nation’s economic crisis is just in its infancy. We have a long way to go and it appears that different sectors of the economy will have their turn in the negative spotlight. First came the mortgage crisis. The nation is still sorting out that huge mess. Now, the New York Times is reporting that a credit card crisis is on the way. As Eric Dash wrote in Wednesday’s edition
After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.
The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.
Faced with sobering conditions, companies that issue Master Card, Visa, and other cards are rushing to reduce the bleeding, even as options once easily tapped by borrowers to pay off credit card obligations, like home equity lines or the ability to transfer balances to a new card, dry up.
Big lenders — like American Express, Bank of America, Citigroup and even the retailer Target — have begun tightening standards for applicants and are culling their portfolios of the riskiest customers. Capitol One, another big issuer, for example, has aggressively shut down inactive accounts and reduced customer credit lines.
Lenders are shunning consumers already in debt and cutting credit limits for existing cardholders, especially those who live in areas ravaged by the housing crisis or who work in troubled industries.
While such changes protect lenders, some can come back to haunt consumers. The result can be a lower credit score, which forces a borrower to pay higher interest rates and makes it harder to obtain loans.
The depth of the financial crisis has shocked our credit-hooked nation into rethinking its habits. Many families once content to buy now and pay later are eager to trim their reliance on credit cards. We have relied on credit cards too long. Many are learning a painful lesson; a lesson we need should have considered a long time ago. Get rid of the plastic and stay with the cast.
After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.
The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.
Faced with sobering conditions, companies that issue Master Card, Visa, and other cards are rushing to reduce the bleeding, even as options once easily tapped by borrowers to pay off credit card obligations, like home equity lines or the ability to transfer balances to a new card, dry up.
Big lenders — like American Express, Bank of America, Citigroup and even the retailer Target — have begun tightening standards for applicants and are culling their portfolios of the riskiest customers. Capitol One, another big issuer, for example, has aggressively shut down inactive accounts and reduced customer credit lines.
Lenders are shunning consumers already in debt and cutting credit limits for existing cardholders, especially those who live in areas ravaged by the housing crisis or who work in troubled industries.
While such changes protect lenders, some can come back to haunt consumers. The result can be a lower credit score, which forces a borrower to pay higher interest rates and makes it harder to obtain loans.
The depth of the financial crisis has shocked our credit-hooked nation into rethinking its habits. Many families once content to buy now and pay later are eager to trim their reliance on credit cards. We have relied on credit cards too long. Many are learning a painful lesson; a lesson we need should have considered a long time ago. Get rid of the plastic and stay with the cast.
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